Compound was once the default answer for crypto lending in decentralized finance. Launched in 2018 by Robert Leshner and Geoffrey Hayes, the protocol allows users to earn interest or borrow assets directly on Ethereum, in a fully decentralized manner, without banks or brokers.
For early DeFi users, it felt natural. The project has raised millions in backing from Andreessen Horowitz, Bain Capital Crypto, Paradigm and Coinbase Ventures.
Compound also helped popularize yield farming, especially after the launch of its governance token, $COMPin 2020, turning passive users into active participants.
In 2021, Compound was the core infrastructure for crypto lending. Billions of dollars were tied up in his smart contracts. Other protocols like Yearn Finance and exchanges like Coinbase also integrated it, cementing the protocol’s dominance in the space.
That changed in October 2021, when the protocol’s liquidity began to rapidly decline.
Compound’s TVL. Source: DefiLlama
The decline is evident in Compound’s Total Value Locked (TVL), which fell sharply from a peak of $12 billion in November 2021 to just $2.2 billion in November 2022, according to DefiLlama data.
Value leak
The problems started when a protocol update called ‘Proposition 62’ was intended to make adjustments $COMP rewards, went live with a bug. As a result, the protocol began overpaying rewards, leaking tens of millions of dollars $COMP to users.
Because of the way composite governance worked, the team couldn’t stop this immediately. The solution had to wait through a mandatory time slot. In the meantime, tokens continued to flow, and confidence in the protocol’s stability went with them.
In an X-post on September 30, 2021, Leshner asked recipients who received the excess $COMP to return it and offered a 10% reward for whitehat returns.
He added that “otherwise it will be reported as income to the IRS, and most of you are doxxed.” The threat prompted a swift response from the crypto community, with Leshner later calling it a blunt-force post and walking back.
But money continued to flow, with tens of millions of dollars pouring out of the protocol in the weeks after the bug was discovered. Although the problem was resolved, the incident was enough to shake confidence.
Bad timing
It’s hard to say whether the October 2021 bug alone ended Compound’s dominance, but it clearly left the protocol vulnerable at a bad time. In December 2021, Bitcoin started falling from an all-time high of $69,000, marking the start of a multi-year crypto bear market.
As crypto prices fell, lending activity in DeFi slowed as borrowers began withdrawing funds. For Compound, which relied heavily on pooled liquidity markets, these outflows were hit harder than competitors like Aave and Maker, which were built around siled or more flexible risk models.
The contrast became more apparent as the crypto winter of 2022 arrived. After Terra’s multi-billion dollar collapse, FTX’s implosion, and a series of failures of centralized lenders, the crypto community became more sensitive to systemic risks.
Behind the scenes, leadership also changed. Leshner retired from day-to-day involvement and in June 2023, he left Compound and founded Superstate, a tokenization platform that allows companies to issue and trade their public shares on blockchain.
As a result, Compound looks markedly different today than it did at its peak, when crypto lending was still taking off. Today, Compound’s once double-digit TVL is just under $1.4 billion. That makes it the seventh largest credit protocol in DeFi by TVL, where Aave dominates with a TVL of almost $27 billion.
Monthly fees have fallen from a 2021 peak of nearly $47 million to around $3.5 million, while the protocol’s highest monthly revenue since the start of 2025 was $888,666, compared to an all-time high of $5.14 million in April 2021.
Compound declined The Defiant’s request for comment for this story.